Sidbi ready to fund foreign buys of small units

The Small Industries Development Bank of India (Sidbi) is ready to fund domestic MSMEs to acquire foreign companies, a top bank official has said.

"We are ready to fund small and medium companies to acquire foreign assets. We will be funding the acquisition value plus the facilitation charges. The money will come from the Rs 600-crore India Opportunity Fund that we have just launched," Sidbi Deputy Managing Director N K Maini told PTI in an interview here.

There are many distressed companies in many Asian countries, especially in the Confederation of Independent States and many domestic MSMEs are looking at entering those markets, Maini said.

The move comes from its successful participation in incubating and propping up start-ups, under which it has also picked up stakes up to 20 percent.

So far, Sidbi has invested Rs 600 crore in 56 domestic companies through its two funds, Rs 100 crore from the first fund and Rs 500 crore from another.

Out of these 56 companies, Maini said, only seven have failed, while nearly a dozen of them are 'star performers' (a term used to describe those companies that are giving 15-20 percent returns on investment annually).

While the lender on an average has invested in the range of Rs 1 to 10 crore from the first fund, with the average exposure being Rs 3 crore, with the second fund it has on an average investment of Rs 10 crore in each of them, while the top-end being Rs 40 crore, Maini said.

Typically, Sibdi lends at 11.75-13.5 per cent, a tad lower than that of commercial banks, Maini said, adding that however, the problem is that out of the Rs 2.5-trillion that the sector needs, the annual fund flow from commercial banks is only around Rs 30,000 crore for the sector as a whole.

The Sidbi Amendment Bill, introduced in Parliament in May during the Budget session, is expected to empower the state-lender to take quick action against defaulters and enable speedy disposal of such cases.

The Bill would streamline the procedure for recovery of loans by Sidbi and also seeks to confer powers on its board to specify the investment limit for small units.

The other changes in the legislation include substitution of the term 'small-scale industry' with MSME, while the amendment will also empower it to render financial assistance by way of venture capital, risk capital, factoring and discounting.

When asked whether the lender has any plans to stay invested in these companies with the SME exchanges in place, Maini said, Sidbi is looking at quitting all those companies in which it had invested a decade or so ago.

Maini said the 22-year-old Sidbi, which is planning to raise an additional Rs 17,000 crore from different lines of credit this fiscal, recently revamped its business model as part of its attempt to reposition itself in MSME sector.

Accordingly, the Lucknow-based bank that has pioneered the concept of bill discounting in the MSME space in the country way back in the early 1990s, will focus on factoring business apart from four niche areas to create an eco-system for the smallscale sector which contributes 40 per cent to the manufacturing output.

Factoring is a receivable management service wherein the seller encashes against his credit sales.

Interestingly, the Nabard, which too has been funding small firms until recently, is also realigning its funding model.

The other niche areas include facilitating equity, quasi- equity and mezzanine debt, and launching a fund of fund for start-ups and incubates, Maini said.

Under these the focus areas, Maini said the bank would fund projects in IT services, defence, hospitality, tourism traditional healthcare, marketing, logistics under focus on the services space; sustainable development that will focus on helping MSMEs use energy saving technologies; receivable financing to extend its already existing bill discounting service, and refinancing or indirect financing.

When asked about how the apex smallscale lender will raise money, Maini said it will come from budgetary sources (Rs 5,000 crore from the India Opportunities Venture Fund announced in the budget), international and multilateral partners and market borrowings.

On the clean technologies front, the bank is getting funding from the World Bank, and the official developmental agencies of Japan (Jica), Germany and France.

Pointing out that factoring services is a big opportunity, as this is only an under Rs 20,000-crore business now in the country, Maini said, Sidbi is creating awareness among the target audience about this funding.

Sidbi's factoring arm will be the sixth such company in the country with the others being SBI Factors, CanBank Factors, IFCI Factors, the state-run ECGC or Export Credit Guarantee Corporation, and the privately-run India Factors.

Sidbi will also shortly set up 100-125 credit facilitation centres across the 400 SMI clusters to help them raise loans. Maini also said that Sidbi will be entering loan syndication consultancy shortly to help small businesses tide over the issue of raising finances.

There are over 30 million MSMEs employing 70 million and contributing 45 per cent of IIP and 40 per cent of exports. Despite the slowdown, the sector grew by 11 per cent last year.

On credit growth, the deputy managing director said, he was looking at raising the loan-book to over Rs 15,000 crore logging in around 35 per cent over 2010-11.

Sidbi, which focuses on cluster-based financing, had lent Rs 700 crore to raise equity and Rs 2,700 crore each for energy efficient technology and receivable management in 2011-12.

Sidbi set a record last fiscal with its outstanding credit outgo touching Rs 53,785 crore with an overall growth of 17 percent, taking the cumulative loan book to Rs 2.45 trillion, benefiting over 325 lakh people.

Last fiscal, Sidbi's net income rose to Rs 567 crore from Rs 514 crore in 2010-11.
According to Maini, Sidbi's restructured book stood at Rs 1000 crore as of FY2011-12, out of which Rs 800 crore came from Andhra MFIs, and Rs 200 crore from its direct lending to MSMEs.

It has an exposure of Rs 1,600 crore into the micro-finance sector, he said, adding all the CDR loans with Andhra micro-finance institutions (MFIs) are standard assets now wherein the banks had recast Rs 5,000 crore last fiscal from Andhra MFIs alone.